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An Alternative Explanation for the Resource Curse: The Income Effect Channel

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Author Info
Arezki, Rabah
Alichi, Ali

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Abstract

The paper provides an alternative explanation for the “resource curse” based on the income effect resulting from high government current spending in resource rich economies. Using a simple life cycle framework, we show that private investment in the non-resource sector is adversely affected if private agents expect extra government current spending financed through resource sector revenues in the future. This income channel of the resource curse is stronger for countries with lower degrees of openness and forward altruism. We empirically validate these findings by estimating non-hydrocarbon sector growth regressions using a panel of 25 oil-exporting countries over 1992–2005.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17130.

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Date of creation: May 2009
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Handle: RePEc:pra:mprapa:17130

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Related research
Keywords: resource curse; fiscal policy; investment and growth;

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Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Microeconomic Data
C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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  1. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  2. Kamilya Tazhibayeva & Anna Ter-Martirosyan & Aasim M. Husain, 2008. "Fiscal Policy and Economic Cycles in Oil-Exporting Countries," IMF Working Papers 08/253, International Monetary Fund. [Downloadable!]
  3. Arvind Subramanian & Xavier Sala-i-Martin, 2003. "Addressing the Natural Resource Curse: An Illustration from Nigeria," IMF Working Papers 03/139, International Monetary Fund. [Downloadable!]
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  4. Aaron Tornell & Philip R. Lane, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March. [Downloadable!] (restricted)
  5. Robinson, James A. & Torvik, Ragnar & Verdier, Thierry, 2006. "Political foundations of the resource curse," Journal of Development Economics, Elsevier, vol. 79(2), pages 447-468, April. [Downloadable!] (restricted)
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  6. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
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  7. Mohsin S. Khan, 1996. "Government Investment and Economic Growth in the Developing World," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 35(4), pages 419-439. [Downloadable!]
  8. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November. [Downloadable!] (restricted)
  9. van Wijnbergen, Sweder J G, 1984. "The 'Dutch Disease': A Disease after All?," Economic Journal, Royal Economic Society, vol. 94(373), pages 41-55, March. [Downloadable!] (restricted)
  10. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, 06. [Downloadable!]
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